The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Exelon Corporation (NASDAQ:EXC) and determine whether the smart money was really smart about this stock.
Exelon Corporation (NASDAQ:EXC) was in 30 hedge funds' portfolios at the end of June. The all time high for this statistics is 40. EXC investors should be aware of a decrease in activity from the world's largest hedge funds lately. There were 33 hedge funds in our database with EXC holdings at the end of March. Our calculations also showed that EXC isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Keith Meister of Corvex Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let's view the recent hedge fund action surrounding Exelon Corporation (NASDAQ:EXC).
What have hedge funds been doing with Exelon Corporation (NASDAQ:EXC)?
At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards EXC over the last 20 quarters. With hedgies' sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
The largest stake in Exelon Corporation (NASDAQ:EXC) was held by Two Sigma Advisors, which reported holding $222.7 million worth of stock at the end of September. It was followed by AQR Capital Management with a $154.1 million position. Other investors bullish on the company included D E Shaw, Corvex Capital, and Levin Easterly Partners. In terms of the portfolio weights assigned to each position Ecofin Ltd allocated the biggest weight to Exelon Corporation (NASDAQ:EXC), around 8.18% of its 13F portfolio. Corvex Capital is also relatively very bullish on the stock, setting aside 4.79 percent of its 13F equity portfolio to EXC.
Seeing as Exelon Corporation (NASDAQ:EXC) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there were a few money managers who were dropping their entire stakes heading into Q3. At the top of the heap, Ken Griffin's Citadel Investment Group dumped the biggest investment of all the hedgies monitored by Insider Monkey, comprising an estimated $49.1 million in stock. Stuart J. Zimmer's fund, Zimmer Partners, also dropped its stock, about $48.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds heading into Q3.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Exelon Corporation (NASDAQ:EXC) but similarly valued. These stocks are Veeva Systems Inc (NYSE:VEEV), Eaton Corporation plc (NYSE:ETN), Las Vegas Sands Corp. (NYSE:LVS), Canadian Pacific Railway Limited (NYSE:CP), Eni SpA (NYSE:E), Kinder Morgan Inc (NYSE:KMI), and Sempra Energy (NYSE:SRE). This group of stocks' market caps are similar to EXC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VEEV,35,529727,2 ETN,34,560308,-1 LVS,47,2396746,5 CP,36,1635509,4 E,8,43125,3 KMI,50,1090828,3 SRE,35,635290,8 Average,35,984505,3.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $985 million. That figure was $773 million in EXC's case. Kinder Morgan Inc (NYSE:KMI) is the most popular stock in this table. On the other hand Eni SpA (NYSE:E) is the least popular one with only 8 bullish hedge fund positions. Exelon Corporation (NASDAQ:EXC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for EXC is 50.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23.8% in 2020 through September 14th and surpassed the market by 17.6 percentage points. Unfortunately EXC wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EXC investors were disappointed as the stock returned 0.9% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.